On the front page of the Springfield State-Journal Register this morning, there is an article about the new Medicaid law changes and how they will impact families. Joshua was quoted several times in the article and a big illustration summary of the law, states at the bottom “Source: Joshua Becker of Edwards Group LLC”. The reporter, Dean Olsen, came out to our office earlier this week to talk to him about the new law.
“We worked hard to pay for and build up the farm to what it’s worth today. We couldn’t have done it without the help of our son (or daughter). As we do our estate planning, how can we be fair to all of our children?”
So begins the conversation these days between farm couple and professional advisor. While some may think of estate planning as merely estate tax planning, taxes are just one issue. The most difficult and important matters may have little to do with taxes. Creating and carrying out plans that will assure fair—while not necessarily equal—treatment of your loved ones is such a matter.
Fairness Is Essential
Taking responsibility for this fairness issue is critical to the long-term health of your family and your legacy. Fail in this regard, and there might never again be a complete family reunion. Stick your head in the sand and you can count on the family farm becoming part of the holdings of the highest bidding neighbor.
We have to face the facts: our society has changed. Children used to stay in the area, marry neighbors, and continue the family farming traditions. Daughters became farm wives and sons became farmers. Now families have at most one or two children still in the farming operation. The others have moved on and away to different careers. The child who is heavily invested—in time, energy and dedication—may very well depend on this farm for a livelihood. To some degree he or she has earned the “right” to keep it, considering that the others moved on to often more lucrative careers and less risky futures.
Despite the changes in society, however, our core values remain unchanged. We want to treat our children fairly. Farming is “in our blood” and we want to see it—this farm—go on. We want to know someone in the next generation who shares our love of farming will carry on the tradition.
You Must Take Responsibility
The hopeful but naive person says, “I just can’t figure it out for them. My kids all get along, they’ll be fair with each other. They’ll divide the property agreeably.” Don’t do that to your kids! Johann Kaspar Lavater provided timeless wisdom when he wrote: “Say not you know another entirely, till you have divided an inheritance with him.” The wonderful kids today will become competitors, easily persuaded—by their spouses?—that they are entitled to their full-value, equal share.
A friend told me recently after suffering through an ugly family farm estate settlement that his parents would have done much better planning and it wouldn’t have been so stressful to them if they had started when they were younger. They waited to do serious planning until around age 80, and the plan did not work as they had intended.
It could have, and yours can if you start soon, look with experienced professionals for carefully tailored solutions, and then follow through. Focus on the results you want to see; let the attorney worry about what legal papers—wills, trusts, buy-sell agreements, partnerships, etc.—will be needed.
Where To Begin
If you commit yourself to a proactive planning process it is possible to achieve fair results that the family will understand and accept. In this extraordinarily complex arena you will need professional counsel.
It’s easy to find attorneys who say they “do estate planning”—but much harder to find one who knows farming and will help you develop and implement the solutions that will fit your unique goals for your family. To see if an attorney can help design a plan to fit your particular circumstances, ask some questions:
- What percentage of your business is devoted to estate planning for farmers?
- Have you seen those plans play out completely and work well?
- How will you assure that my plan stays current with the law?
If you begin now to ask the right questions you will be able to develop the right plan for your family, and assure that what you have goes to whom you want, when and the way you want, transferring your traditions—not just your net worth.
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Article authored by Curt W. Ferguson and originally published in the Prairie Farmer magazine, December 2005 issue. See the article on Curt’s web site, click HERE.
For more on this topic check out our article, “Saving the Family Farm.”
Do you think of yourself as rich? Hopefully you do, but mostly in ways that don’t show up on a tax return. Are you rich in the things that really matter – loving family, good friends, your faith, serving others? Whether or not you think of yourself as a wealthy person, you can take advantage of the legal and tax benefits of giving to charity and doing it effectively.
Most people don’t give to charity just for the tax benefits. But if you believe in sharing what you have and making a difference in your community, then why not do it right? Save some money from going to Uncle Sam and add it to what you plan to give to charity.
What is planned giving? It’s nothing more than making a plan to give in the best possible way. What is the best way? One that will best benefit the organization, save taxes, and protect your family by providing for you during your life. Planned giving can help you find the best way to decide:
- What you give.
- How you give it.
- When you give it.
Here’s my top 10 things about charitable giving that everyone should know if their wealth is somewhere between Mother Theresa’s and Bill Gates.
- Use ticking tax time bomb assets. Do you have assets that may lead to a tax later? Such as stock or real estate that has gone up in value, or an IRA or annuity? Use those assets to give to charity. Avoid the capital gains tax and still get the deduction for the charitable gift.
- Give at your death. Think of the wealth you have. Suppose you decide to give a percentage of your assets at death to charity – maybe 1%, 5% or even 10%. If your kids get a little less at your death, will that reduce their quality of life? But just a small percentage of your estate going to charity can make a big difference in others and in your community.
- Give during life. There is one thing better than giving at your death. What’s that? Giving while you’re still alive. By all means, give at your death. But if you can afford to give now and still live comfortably, then do it. There are 2 good reasons for this. You can get a tax deduction if you do it while you’re alive. Plus, it’s much more fun to give now while you can see how your gift is used and enjoy watching the impact it has on others.
- Look for a win-win situation. Suppose you want to make sure you have enough money to live on during your life, but also help a charity. There are special legal and tax tools we can use to give you a lifetime income that never runs out, while still giving to charity.
- Don’t worry about the fancy stuff. You’re already an expert in what you need to know to be an effective giver. Don’t worry about knowing all the details of how fancy charitable strategies work – charitable remainder trusts, charitable gift annuities, charitable lead trusts, etc. Focus on what you hope your gift will accomplish, and let professional help find the best way to do it.
- Remember why you’re doing it. In the end, you give because you want to make a difference. Maybe you give in memory of someone you love. Maybe you give because of all the blessings you have received in your life.
- Listen to a professional. Ask questions and listen to those who can help you do charitable giving in the best way. To get the most done in the most efficient way. The charity’s planned giving or development officer, your tax advisor, or an estate planning attorney can help you consider the best giving options.
- Use the right professional. Who do you use to help with your tax or legal strategies for charitable giving? Look for someone who handles these matters regularly and look for someone who is generous in giving to charity and helping others in their own life.
- Involve your family. Will your giving set an example for your children and grandchildren? Have you considered involving them now in making decisions about your charitable gifts?
- Be wise about who you give to. Give to organizations with a proven track record of helping others.
If you have questions about the best way to give to charity, contact our Client Coordinator at 217-726-9200 and schedule a phone call or appointment to see how we may be able to help.
Family farms. Effectively planning to protect the family farm requires us to consider at least two types of planning. And the 2 types involve 2 different definitions of “save”.
1. Does it mean to transfer the farm and protect it from nursing home costs, estate taxes, or other risks that could cause the property to be sold or taken by creditors? OK, we have strategies to effectively do all of that.
2. Does it mean preserving it for future generations? This is an entirely different question. We might plan perfectly to transfer the farm and avoid the taxes, creditors, and other risks. However, once the kids get the farm, what then? If our goal is to keep it in the family, what risks do we face then? Perhaps the kids disagree on how to manage the farm. Maybe one child wants to sell or needs the money? Maybe a child faces a financial disaster and files bankruptcy. Will the other kids buy him out? Can they afford to buy him out?
These same issues go for other unique pieces of real estate. What about the family vacation home, lakehouse, or hunting land? Do we preserve it for future generations or just transfer it to the next generation and hope for the best?
Effective estate planning is much more than a simple transfer to the kids. An effective plan will consider your goals for the property many years, perhaps many generations after you’re gone. For more on this topic, check out our post “Keeping the Family Farm in the Family.”
If you attend a workshop or meet with me individually, you will probably hear about the “school bus trust”. What is it? A “school bus trust” is a trust designed to protect the assets you are leaving to a spouse, child or other loved one, and protect it from liability for a school bus accident. The trust also protects against other liability such as divorce, remarriage, business downturns, professional malpractice, personal loan guarantees, and other risks.
The “school bus trust” can be designed where your spouse or kids can get the money when they need it, but otherwise the assets are protected from outside threats.
Come to our Wills & Trusts: How to Get Started workshop and hear a lot more about how a “school bus trust” works.
“After 2 years in court, I realized we could lose everything we had worked for…I felt heartbroken and overwhelmed.”
You’ve heard me talking about asset protection – how you should set up your estate to protect your spouse and children from threats to their inheritance from lawsuits, creditors, divorce, remarriage, etc. Maybe you’ve thought to yourself that your spouse or kids don’t need that because they are good drivers, make wise decisions, aren’t in a risky profession or business, would never marry a gold digger, etc. Well, that may protect them from some risks, but not all.
A man took his pants to a D.C. drycleaner. He came to pick them up and supposedly they misplaced them. So he sued the dry cleaner for damages of $54 million for the lost pants. How did he come up with $54 million? That’s $18,000 for each day that the store allegedly committed consumer fraud by having a sign on the wall saying “Satisfaction Guaranteed”.
The court found in favor of the dry cleaner. No surprise there. Then the customer appealed to get the ruling overturned. Guess what? The appellate court also agreed that the case was ridiculous and tossed it out. So everything is fine, right? Well, all that took over 2 years.
“Even though we were victorious, I knew no one had won this battle.”
The owners of the dry cleaner, Korean immigrants Soo and Jin Chung, had to sell the business, citing the legal expenses (well over $100,000) as well as the stress of becoming part of a case that was a media sensation.
What is the moral of this story (from an estate planning perspective)?
- Threats include not just legitimate threats (such as a car accident that was your spouse’s fault), but also bogus threats that cost money to defend.
- You can’t insure against all possible threats. $54 million is beyond any small business’ insurance policy.
- Outside threats to assets are outside of our control. What are the odds a dry cleaner will lose a pair of pants? Probably 100% of dry cleaners have lost something at some point. What are the odds of getting sued for $54 million? Pretty slim, but all it takes is one loony customer who decides to take you to court. And all it takes is one nut job to threaten the hard earned money you leave to your wife or child.
While this story is quite extreme, there are some pretty common types of asset protection that most people need to think about. Read about more real-life asset protection examples here.
Here are some things to consider for yourself as you look at getting older. They are in no particular order, just my random thoughts from years of working with families facing these situations.
1. Are you having discussions about how you want to be cared for as you get older? Talk about it. Better yet, put your wishes down in legal documents so people are clear what you want.
2. Is your family prepared to handle things without your help, whether financially or otherwise? If not, you better make doubly sure things are set up right, so they get the assistance they need.
3. Have you lined up the financial resources needed if you became disabled? Such as disability insurance (at work or individual), long term care insurance, emergency fund savings. Do you have too much debt? Do you really want to be retired or facing a disability with credit card debt or a mortgage that’s not paid off?
4. Who is going to help you with healthcare decisions? Who will encourage you to go to the doctor? Who will go to the appointments with you to make sure you stay as healthy as you can for as long as you can?
5. Are you spending too much? How does your income, savings, and spending line up if you look out a few years? Have you calculated how your savings will grow or shrink based on your current spending level? or do you need to have a professional help you do that?
6. Are you spending too little? You have worked hard and saved your money. It’s OK to spend some and enjoy yourself by traveling or other things you enjoy. Or, if you truly have more income than you need and can spend, consider using those funds to increase what you leave at death. For instance, if you have IRA distributions you have to take (after age 70.5), use those distributions to pay life insurance premiums. Then leave the life insurance to your loved ones or a charity you believe in. When we run statistical projections for clients considering life insurance, they almost always show that a person leaves more money at death by purchasing life insurance. If you really don’t need the money, parlay it into a bigger chunk with life insurance.
7. Never say never. Transitions and change are difficult. Are you laying down a gauntlet by saying “I never will…”? Instead, make a plan so you can enjoy the most freedom and as full a life as possible for as long as possible.
8. Are you willing to make a transition sooner than necessary so you can avoid losing control? By getting “greedy” and holding on too long, sometimes people can end up losing their independence more quickly. For example, a grandmother leaves the family home earlier than anyone thinks she needs to, and enters a retirement community, where she has less stress of home upkeep, and more social opportunity that keeps her young. Another grandmother waits too long, goes downhill at home by herself, gets hurt by falling, declines by not eating right. Then when she is later forced to move to another living arrangement, she can’t enjoy the people or activities there because of declining health. Remember, there are endless variations to the type of retirement community or assistance a person can choose. Make choices while you still have choices, instead of having those choices made for you in a crisis.
9. Make gifts while you are around to see someone enjoy them. Gifts to your church or charity. Gifts to family (especially of heirlooms where you can share the story behind them). If you can, give some money and things away while you are still healthy so you can see how they bring joy and benefit to those who received it. To learn more about charitable giving, click HERE.
10. The ultimate question. I personally can never think about getting older without thinking about the ultimate question – what is there beyond this life? I believe that faith in Jesus Christ leads to eternal life.
There are 2 kinds of people in the world. Some can’t get enough of the Michael Jackson saga. Others are complaining about how all the real news in the world is being drowned out by old Michael videos and talking heads analyzing his dysfunctional family. If you’re in the 2nd group, my apologies. But below is more great information about Michael and his estate planning.
Also, if you want another interesting take on Michael’s estate plan, check out the blog post of my colleague Victor Medina – “Michael Jackson’s Estate Plan – What He Did Right!”
MICHAEL JACKSON: Part Two
1. Don’t you want to avoid confusion? With Michael, there was a time period where it wasn’t clear whether he had a Will or not. In fact, his mom went to court and told the judge there was not a Will and asked that she be given power as the administrator. Now things change once the Will is presented to the court. Good planning will avoid this limbo period where people are wondering if there is a Will and where it is. Good planning will make sure that the right people know how to quickly get their hands on legal documents that you have prepared.
2. Who is a good choice as guardian of your kids? Michael’s mom is 79 years old. His youngest child is 7. If I have my math right, she will be 90 years old when he gets out of high school. Is she the best option as guardian? Under Illinois law, do you know who is qualified to raise your kids? Anyone over 18 who is not a felon but is U.S. citizen. So from that pool of people, the judge has to pick someone who is in the best interest of the child. In Illinois, the court will lean strongly toward following the parent’s wishes in naming a guardian, but is not absolutely required to name the guardian you list in your Will. If you properly name a guardian in writing, then your choice has “prima facie” validity. This means that the court presumes that your guardian choice is best, but the court may approve someone else if evidence shows that is better.
3. What about the other parent? The mother of 2 of Michael’s kids, Debbie Rowe, is to have nothing to do with them, according to his family at a press conference. She was not named as a guardian. I am assuming that she gave up all her parental rights because (in Illinois) the other surviving parent will continue to be the child’s guardian, regardless of what the Will said, unless their parental rights had already been terminated.
4. No planning = 18 year old with money. I assume that Michael’s trust provides for his children and gives instructions about how their money will be managed and when and how they can spend it or take control over it. But, if he had no plan or they couldn’t find the documents, then the law (at least in Illinois), is that kids get their money at age 18. Would your 18 year old high school senior be ready to receive your wealth (home, retirement plan, life insurance, etc.)?
5. Don’t be distracted by the big numbers. Don’t get caught in the trap that only rich people like Michael need to do estate planning. We should just call it “planning” and get rid of the term estate. Every person, regardless of their wealth or family situation, should do some kind of planning for when they are disabled or pass away. Good planning to make things easier, better, cheaper, smoother, quicker – for you now and your family later. Even doing nothing is a plan in itself.
6. End up like Elvis? Part 1. Michael was afraid he would end up dying young like Elvis. Hopefully Michael’s estate won’t end up like Elvis. When Elvis died, his estate was worth about $10 million, but by the time expenses, taxes, lawyers, and probate fees were all paid, there was less than $3 million left.
7. End up like Elvis? Part 2. Despite Elvis’ lack of planning for his death, his family has done very well with the family business. A few years ago, the family sold most of their Elvis rights for $100 million. From being worth $3 million to over $100 million in 30 years. Not bad. I say do both – set up good planning that handles your estate properly now, but also sets up your family for greater success later. Elvis’s family overcame bad initial planning to successfully grow the family wealth. Don’t make your family have to overcome that obstacle.
I went to U of I in Champaign-Urbana. Both undergrad and law school. A lot has changed since I left law school in 1995. Many new buildings, and tuition has gone way up. Do you know how much it will cost now for 4 years of undergrad, including tuition, books, room and board, etc.? Somewhere around $100,000.
Suppose your kid is ready to head to college this fall. He gets all his stuff packed, buys that little fridge, picks out a shower caddy thing, and is ready to head off to college. The day comes where you pack up the mini-van and head to Champaign. You help carry all the stuff into the dorm, give him a hug, tell him to behave himself. Then you pull out your checkbook and say “Well, since we know it’s going to cost you about $100,000 to get through the next 4 years, I thought I would go ahead and give it to you now.” So you write out that check, hand it over, get in the car and drive back home.
Assuming you had $100,000 sitting around that was earmarked for your child’s college, would you do it this way? Would you hand the entire amount over on the first day he moves in to the dorm? No? You wouldn’t do that? Why on earth not?
Well, I guess there could be a few “complications”.
1. He might not spend it wisely. You know, parties or a new car or who knows what? Then runs out of money before he gets the degree.
2. He might be taken advantage of. If word got out that he had a big wad of money just handed to him, do you think he would have any new “friends” that might be interested in hanging out? I’m sure there would be plenty of kids willing to help him make some financial decisions.
3. He might be less motivated to work hard. Hey, you’re only young once. Doesn’t it make sense to have some fun with a little of that money now? He figures he can always get a job during his last year or two of college to make up the difference.
4. What if he gets in trouble? Maybe gets in a car wreck and gets sued? Or gets in with the wrong crowd and makes a bad decision that leads to property damage or criminal charges?
5. He isn’t emotionally ready to handle that kind of money. You just handed him $100,000, even though he’s never had more than $500 in discretionary money to himself before now.
6. What if his plans change? Maybe he flunks out, changes his major, takes a semester off, or drops out of school to start a band? Are you expecting to get change back on your $100,000 if he doesn’t finish with a degree?
7. He might fall in love. Yes, love can do strange things to someone’s financial decisions.
Well, I guess you realize that people die all the time leaving assets to their kids. And those kids may not be any more ready to receive it than your college student was to receive that $100,000 right now.
Let’s say something happens to you tomorrow and you left all your assets (house, retirement plans, life insurance, bank accounts, etc.) to your kids. Would the amount of money you leave them make an impact on their daily lives? How much impact? Very little, some, or a whole bunch? Would the lifestyle they could afford be changed?
Think of the specific amount of money you would leave if you died tomorrow. How much will it increase your child’s net worth? Double it, triple it, make it go up 10 times or a 100 times? or more?
All those issues that cause concern about the college student are the same issues we address with clients in estate planning. These issues are what I call “wealth reception” issues. It’s not just about how quickly we can get the check to the kids. More important is what impact, good or bad, will the money have on the kids after they get it. And will the wealth better their lives one year, 5 years, or 10 years after you’re gone?
Are you tired yet of hearing about the Michael Jackson saga? One thing for sure, the gossip media should have plenty to talk about for quite a while. It turns out Michael did have a Last Will & Testament after all. (Thanks to those who sent me links to good articles on his estate issues.) Despite the circus atmosphere, Michael’s estate situation gives us some reminders about important planning issues:
1. Wills are public. Usually, there are many issues that are much more important to your family than keeping your estate matters secret. But at the same time, do you really want people to see your private info? And with increasing online access to court records, it will be easier and easier for your neighbor or nosy relative to look at your Will in court records without leaving home.
2. Living Trusts are private. A living trust is a good way to keep your info private at your death. And that’s exactly what Michael did. Look at his Will. It is what we call a “pour over will”, meaning his will doesn’t have much in it except instructions to dump assets at his death into what they are calling his “Family Trust” (which is private and will stay private). So all the gory details about who gets what and when they get it are only in that private document, incorporated by reference into his Will. And it seems to me that Michael’s Will actually included more info than necessary. For instance, I usually would not put something in the Will about disinheriting anyone (as he did with is ex-wife). That kind of info can go in your trust to keep it all private.
3. Asset titling is key. We haven’t seen how this part plays out yet. Even though Michael had a living trust, if he didn’t properly title his assets in that trust before his death, then the probate court will have to do it using his will. Without assets organized properly, he will lose part of the benefits of the living trust.
4. Feeding frenzy? Michael’s death is a media frenzy, but also a money frenzy too. Friends, relatives, business associates, will all be scrambling to take financial advantage. Those who are controlling his assets will be approached by all kinds of people with all kinds of ideas and schemes, all designed to get some money from the estate. Marlon Brando’s estate attorney said people came “out of the woodwork making all sorts of claims” after Brando died. At your death, who will be in charge of your estate and who will be at risk for being taken advantage of?
5. Personal items are important. There is a court dispute over 2,000 personal items. Michael’s mom has control of them, but the real executors want them back. The judge told them to try to work it out. I have seen a lot of hurt feelings and disputes over personal items, sometimes of small dollar value. But sometimes the items of small dollar value have huge sentimental and emotional value. What have you done to make sure your personal items don’t cause a dispute later? What have you done to preserve the stories behind items of emotional value?
6. We never know when. We look at Michael and figure he was living a life on the edge that could lead to an early death. But the fact is that none of us know when our time is up. One thing about estate planning – you need to do it when you don’t need it, because when you need it, it’s too late to do it.
Despite some feeling like the topic has been covered way too well, there is even more we can learn from this situation, including how to choose guardians for your children. Check out Part II of this post here.